Federal Appeals Court Defines “Instrumentality” Under FCPA

by Morgan Lewis

Federal appeals court provides a two-step “control” and “function” analysis for determining whether an entity qualifies as an “instrumentality” under the Foreign Corrupt Practices Act.

On May 16, the U.S. Court of Appeals for the Eleventh Circuit addressed the reach of the Foreign Corrupt Practices Act (FCPA) by holding that a government “instrumentality” can include a state-owned or state-controlled entity. In United States v. Esquenazi,[1] the Eleventh Circuit rejected arguments by former Terra Telecommunications Corp. executives challenging the district court’s “instrumentality” jury instructions and the jury’s determination that Telecommunications D’Haiti SAM (Haiti Teleco) qualified as a government instrumentality. The Eleventh Circuit used the opportunity to define the term “instrumentality” and present a two-step “control” and “function” analysis for assessing whether an entity qualifies as a government instrumentality for the purposes of the FCPA. The decision provides greater clarity to the ambiguity inherent in the FCPA definition of a foreign entity covered by the statute and, as long argued by U.S. enforcement authorities, largely adopts an expansive test for making that determination.

FCPA and the Definition of “Instrumentality”

The FCPA prohibits bribes to “any foreign official” or to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official . . . for purposes of . . . influencing any act or decision of such foreign official . . . in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person.”[2] Under the statute, “foreign official” includes “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.”[3] The FCPA does not, however, define the term “instrumentality.”

The U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) have long contended that government instrumentalities include state-owned and state-controlled entities,[4] arguing on appeal that entities can qualify as instrumentalities for the purposes of the FCPA if they “perform a governmental function.”[5] In contrast, former Terra President Joel Esquenazi and former Vice President Carlos Rodriguez argued on appeal that an entity must perform “traditional, core government functions” to qualify as an instrumentality.[6]

Although district courts have formerly found that “instrumentality” determinations should be based on a fact-driven analysis of the entities’ control, purpose, ownership, and function,[7] Esquenazi was the first opportunity for a federal appellate court to address the government’s broad interpretation of the term. According to the Eleventh Circuit, “[a]n ‘instrumentality’ under section 78dd-2(h)(2)(A) of the FCPA is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”[8]

“Control” and “Function” Analysis

Although the appeals court cautioned that “what constitutes control and what constitutes a function the government treats as its own are fact-bound questions,” the court provided nonexhaustive factors for making instrumentality determinations.[9] When assessing whether an entity is “controlled by the government,” the Eleventh Circuit advised judges and juries to consider the following:

  • The foreign government’s formal designation of that entity
  • Whether the government has a majority interest in the entity
  • The government’s ability to hire and fire the entity’s principals
  • The extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even
  • The length of time these indicia have existed[10]

In determining whether an entity “performs a function the controlling government treats as its own,” the appeals court counseled judges and juries to consider whether any of the following criteria are met:

  • The entity has a monopoly over the function it exists to carry out.
  • The government subsidizes the costs associated with the entity that’s providing services.
  • The entity provides services to the public at large in the foreign country.
  • The public and the government of that foreign country generally perceive the entity to be performing a governmental function.[11]

Applying this two-step analysis, the Eleventh Circuit had “little difficulty” affirming the jury’s finding that Haiti Teleco qualified as a Haitian instrumentality:

From Teleco’s creation, Haiti granted the company a monopoly over telecommunications service and gave it various tax advantages. Beginning in early 1970s, and through the years Messrs. Esquenazi and Rodriguez were involved, Haiti’s national bank owned 97 percent of Teleco. The company’s Director General was chosen by the Haitian President with the consent of the Haitian Prime Minister and the ministers of public works and economic finance. And the Haitian President appointed all of Teleco’s board members. The government’s expert testified that Teleco belonged “totally to the state” and “was considered . . . a public entity.” Although the expert also testified that “[t]here was no specific law that . . . decided that at the beginning that Teleco is a public entity,” he maintained that government, officials, everyone consider[ed] Teleco as a public administration.” Construed in the light most favorable to the jury’s verdict, that evidence was sufficient to show Teleco was controlled by the Haitian government and performed a function Haiti treated as its own, namely, nationalized telecommunication services.[12]


The Esquenazi decision is the first appellate court opinion to address challenges to the DOJ’s and SEC’s interpretation of “instrumentality.” Although the “control” and “function” analysis may not provide the bright-line guidance desired by businesses that operate in the global arena, the opinion confirms regulators’ warnings that improper payments to employees of state-owned and state-controlled entities can violate the FCPA. Companies that interact with such entities should review their compliance policies to ensure that they address the factors enumerated by the court.

[1]. United States v. Esquenazi, Case No. 11-15331 (11th Cir. May 16, 2014), available here.

[2]. 15 U.S.C. §§ 78dd-2(a)(1)-(3).

[3]. 15 U.S.C. §§ 78dd-2(h)(2)(A).

[4]. See, e.g., FCPA Resource Guide at 20 (“The term ‘instrumentality’ is broad and can include state-owned or state-controlled entities.”).

[5]. United States v. Esquenazi, Case No. 11-15331, Appellee Government Brief at 19, available here.

[6]. Esquenazi at 18.

[7]. See, e.g., United States v. Carson, Case No. SACR 09–00077–JVS, 2011 WL 5101701 at *3–4 (C.D. Cal. May 18, 2011).

[8]. Esquenazi at 20.

[9]. Id. at 21.

[10]. Id.

[11]. Id. at 22–23.

[12]. Id. at 27–28.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.